AbstractThe promise of randomized controlled trials (RCTs) is that evidence gathered through the evaluation of a specific program helps us—possibly after several rounds of fine-tuning and multiple replications in different contexts—to inform policy. However, critics have pointed out that a potential constraint in this agenda is that results from small, NGO-run “proof-of-concept” studies may not apply to policies that can be implemented by governments on a large scale. After discussing the potential issues, this paper describes the journey from the original concept to the design and evaluation of scalable policy. We do so by evaluating a series of strategies that aim to integrate the NGO Pratham’s “Teaching at the Right Level” methodology into elementary schools in India. The methodology consists of re-organizing instruction based on children’s actual learning levels, rather than on a prescribed syllabus, and has previously been shown to be very effective when properly implemented. We present RCT evidence on the designs that failed to produce impacts within the regular schooling system but helped shape subsequent versions of the program. As a result of this process, two versions of the programs were developed that successfully raised children’s learning levels using scalable models in government schools.

A common criticism of randomised controlled trials in Economics is that the causal effects they examine are too local in nature. They apply to a particular site, at a particular time, and are specific to aspects of the treatment and how it was implemented etc., Furthermore, results that apply in trials may have different effects when scaled to a population e.g. an effective education intervention scaled to the entire population may affect the labour market in various ways that can't be understood from the trial data. Furthermore, political effects such as public backlash or political corruption may apply differently to well-designed and intensely monitored trials than to large national scaled programmes. The paper goes in detail to many such problems with RCTs and should be read for this reason alone by anyone working on or interested in applying this approach.

So, given these problems, how can we go from the results of such trials to examine policy systems as a whole?. The authors provide an example of a large-scale education study in India where various different approaches were taken, working with the government, to scale an education intervention to 33 million children. They describe how different interventions were developed based on evidence on child learning and then rolled out in different provinces, with many attempts to control for context dependence. They describe the role of RCT data in the context of scale-up and the various challenges that result from an administrative perspective when attempting to scale up interventions that have been shown to be successful at trial stage. The authors draw a number of general lessons about the importance of iteration, close working relationships with administrative bodies, good process evaluation, and a range of other factors that must be in place to allow for successful scale up.

Saturday, November 26, 2016

The UK Financial Conduct Authority has released several papers over the last three years on the use of behavioural economics in policy (I would particularly recommend their first paper on this for a very useful overview of behavioural economics)e. Their latest paper is available here (summary below). It summarises a range of experimental evidence from trials they have conducted on behavioural aspects of retail financial markets in the UK. The publication of such a range of experiments, many of which do not find evidence for the effects tested, is very welcome and a further step toward what a mature use of behavioural evidence in public policy should look like. It is also particularly welcome to see a body such as the FCA cite the work of scholars such as Nancy Carthwright and Angus Deaton in calling for a more contextualised integration of randomised trial and other types of evidence into public policy. The usefulness of behavioural interventions in financial regulation is still wide open for debate, in particular the optimal mix of hard and soft interventions in regulating markets with high degrees of confusion and potential for exploitation.

Summary

The FCA has been at the forefront of using behavioural science and experiments to inform regulation. Since our first field trial on customer compensation in 2013, we have published the results of experimental research in a number of consumer markets including savings accounts and structured savings products, along with car and home insurance.

This round-up paper presents a further eight experiments, comprising five field trials and three online experiments, which test the effect of interventions that draw on behavioural theory, such as increasing salience or personalisation.

We investigate diverse questions including:
How can we design disclosure about annuities to help people get a better deal?
How can firms improve customers’ engagement with their mortgages?
What messages encourage customers to claim compensation?
How can compliance and engagement amongst regulated firms be improved using communications?

While some experiments corroborate existing research or find interesting effects, others did not find any statistically significant effects. We are publishing these results, including non-significant and negative results, in the spirit of good research so that we can improve evidence, combat publication bias and make our research transparent. We also share some of the practical lessons we have learned, in the hope that others may benefit from them.

The ninth annual one day conference on Economics and Psychology will be held on November 25th in Queen's University Belfast, jointly organised by researchers in QUB, ESRI, Stirling and UCD. The purpose of these sessions is to develop the link between Economics, Psychology, and cognate disciplines throughout Ireland. A special theme of these events is the implications of behavioural economics for public policy. As well as the annual workshop we have developed a broader network to meet more regularly to discuss work at the intersection of economics, psychology, and policy. This has had five meet-ups so far, as well as some offshoot sessions. Anyone interested in this area is welcome to attend. However, spaces are limited so please sign up here to register.

Monday, November 21, 2016

Financial literacy competencies: an interactive dashboard

The OECD/INFE has recently published results of an international data collection which measured financial literacy and financial inclusion. The survey aims to enable policy-makers to identify gaps and design appropriate responses. Also, it potentially allows comparisons between countries and the identification of patterns. A total of 51,650 adults aged 18 to 79 from 30 countries and economies participated in the survey.

People were quizzed about money, savings, debt and investments using questionnaires items. Competencies were measured in three dimensions: knowledge, attitudes and behaviour. One of the main results is related to the achievement of minimum target scores of competencies within each country. For instance, a country achieves the targeted financial knowledge if its citizens give 5 correct answers to a total of 7 items. Similarly, the process is applied to the other two dimensions: attitudes (3 out of 5) and behaviour (6 out 9).

The report shows that knowledge scores are significantly lower for women than men after controlling for country-level differences, age and education. Interestingly, self-assessed financial knowledge was shown to be relatively realistic: in most countries, people who rate their financial knowledge as being higher than average do, on average, have higher scores than other people in their country.

To facilitate visualisation of these dimensions, we created an interactive dashboard with Tableau in which you can check the relationships (or the absence of them) between knowledge x attitudes x behaviour. The visualisation indicates shows no clear association or patterns between knowledge, behaviour and attitudes across countries.

Tuesday, November 15, 2016

See below for the provisional schedule of a workshop we will host in Stirling on November 16th on the work we are conducting in the areas of unemployment and precarious employment. Registration is free but places are limited due to the space so we ask you to register in advance on the eventbrite page.

Schedule:

12pm - 1215pm: Opening and Objectives

1215pm - 1230pm: David Bell "Topics in Employment and Underemployment". (Joint with David Blanchflower).

345pm - 430pm: Panel on developing research and policy on unemployment and precarious employment.

Online Resources and Background to Stirling Research
Below is a set of links to papers, reports and mentions of research on unemployment that has been undertaken here in Stirling over the last 8 years or so. It is not intended to be a comprehensive list and I will add to it over the next few months. We have also run several workshops and seminars in this area (recent one here). We will announce soon a workshop on youth unemployment in Europe and I very much welcome suggestions. We are also currently advertising PhD studentships, two of which are relevant to this agenda.

Thursday, November 03, 2016

I will use this post to gather readings and resources in the area of behavioural science and law. Below just a starter. As often the case with these posts, I am aiming to give a wide overview of the different streams of thought - these are not posted as endorsements of any of the papers. The overlap between law and behavioural science will be a big feature of our new Dublin research and teaching programme, and we are also in the process of organising further workshops in this area (see a related post and workshop details on the topic of ethics and behavioural science policy).Aaken (2014). Behavioral International Law and Economics. Harvard International Law Journal, 55 (2).

Whereas the rational choice approach to international law has been widely accepted in legal scholarship and international relations theory, challenges to the rational choice paradigm in economic analysis of international law have hitherto not been systematically explored. Nevertheless, behavioral law, economics and psychology have been successfully applied to national law constellations. Behavioral economic insights have furthermore been used in international relations scholarship under the heading of “political psychology,” but international norms are neglected. Building on all those insights, this Article explores the potential and challenges of extending the behavioral law and economics approach to public international law and thus to further refine our understanding of international law. It looks specifically at treaty design problems and compliance questions. This ties in with increased use of empirical research in international law, a clear desideratum for evidence-based international law.

Nudges having paternalistic purposes (paternalistic nudges) pose special legal problems in liberal States. Surprisingly, the discussion on regulation-by-nudging has not focused on the constitutional limits to nudging. Although the property rights of firms potentially infringed by nudging measures are dealt with in more detail in the literature as well as by national and international courts and tribunals, the potential infringement of the rights of those being nudged is neglected. But judges may at one point be confronted with a nudge regulation challenged by the individuals being nudged; and even before reaching a court, the legality of nudging should be scrutinised by legislators.

I explore the legal limits of paternalistic nudging under the European Convention of Human Rights and the EU Charter of Fundamental Rights, judging different types of nudges by the proportionality principle. At issue is the question of how much paternalistic nudging and what types of paternalistic nudges the fundamental rights protection in the EU permits. Before the EU uses paternalistic regulation-by-nudging, we need to “judge the nudge.”

Behavioral sciences help refine our understanding of human decision-making. Their insights are immensely relevant for policy-making, since public intervention works much better when it targets real people rather than imaginary beings assumed to be perfectly rational.

Increasingly, governments around the world are keen to rely on those insights for reshaping public interventions in a wide range of policy areas, such as energy, health, financial services, and data protection. When policy-making meets behavioral sciences, effective and low-cost regulations can emerge in the form of default rules, smart disclosure, and simplification requirements.

While behaviorally-informed intervention has a huge potential for policymaking, it also attracts legitimacy and practicability concerns. This book takes a European perspective on those issues and explores the legal implications of the emergent phenomenon of behavioral regulation by focusing on the challenges and opportunities it may offer to EU policy-making and beyond.

It will be a fascinating read for academics and practitioners working in the field of European law and consumer law, as well as for policymakers.

As behavioral sciences are unearthing the complex cognitive framework in which people make decisions, policymakers seem increasingly ready to design behaviorally informed regulations to induce behavior change in the interests of the individual and society. After discussing what behavioral sciences have to offer to administrative law, this article explores the extent to which administrative law may accommodate their findings into the regulatory process. After presenting the main regulatory tools capable of operationalizing behavioral insights, it builds a case for integrating them into public policymaking. In particular, it identifies the need to develop a legal framework capable of ensuring that behavioral considerations may inform the regulatory process while at the same time guaranteeing citizens’ constitutional rights and freedoms vis-à-vis the regulatory state.

The preference of behavioral law and economics (BLE) for regulatory approaches that preserve “freedom of choice” has led to incomplete policy analysis and inefficient policies. BLE has been broadly regarded as among the most promising new developments in public policymaking theory and practice. As social science, BLE offers hope that better understanding of human behavior will provide a sounder foundation for policy design. As politics, BLE offers a possible political consensus built around minimalist forms of government action — “nudges” — that preserve freedom of choice. These two seductive dimensions of BLE are, however, in deep tension. Put simply, it would be surprising if the evidence documenting the failure of individual choice implied a turn toward regulatory tools that preserve individual choice.

Developing BLE fully along its social-scientific dimension would reveal two categories of recurring limitations in BLE. First, BLE often artificially excludes traditional regulatory tools, such as direct mandates, from its analysis of policy options. However, BLE’s preferred nudges are, in important cases, not likely to be effective — ironically, for reasons BLE itself identifies. BLE has also neglected the ways in which behavioral failures interact with traditional market failures and the implications of this interaction for policy design. A more complete framework generates policy recommendations beyond both nudges and neoclassical economic prescriptions.

Second, BLE does not properly evaluate, at times, how its own regulatory tools actually function. Many of these seemingly choice-preserving tools are not nearly as light touch as advertised. The default rules so central to BLE are often better viewed as preserving the formality of choice while, for many individuals, functioning as effective mandates. The view that people can always rationally opt out has led policymakers to set these powerful defaults at the wrong levels, resulting in counterproductive policies.

We illustrate the costs of BLE’s commitment to freedom of choice by analyzing three of the most important areas for current policy: retirement savings, consumer credit, and environmental protection.

For nearly four decades, economic analysis has dominated academic discussion of tort law. Courts also have paid increasing attention to the potential deterrent effects of their tort decisions. But at the center of each economic model and projection of cost and benefit lies a widely accepted but grossly undertested assumption that tort liability in fact deters tortious conduct. This article reports the results of a behavioral science study that tests this assumption as it applies to individual conduct. Surveying over 700 first-year law students, the study presented a series of vignettes, asking subjects to rate the likelihood that they would engage in a variety of potentially tortious behaviors under different legal conditions. Students were randomly assigned one of four surveys, which differed only in the legal rules applicable to the vignettes. In summary, the study found that although the threat of potential criminal sanctions had a large and statistically significant effect on subjects' stated willingness to engage in risky behavior, the threat of potential tort liability did not. These findings call into question widely accepted notions about the very foundations of tort law.

Behavioral economics (BE) examines the implications for decision-making when actors suffer from biases documented in the psychological literature. This article considers how such biases affect regulatory decisions. The article posits a simple model of a regulator who serves as an agent to a political overseer. The regulator chooses a policy that accounts for the rewards she receives from the political overseer—whose optimal policy is assumed to maximize short-run outputs that garner political support, rather than long-term welfare outcomes—and the weight the regulator puts on the optimal long run policy. Flawed heuristics and myopia are likely to lead regulators to adopt policies closer to the preferences of political overseers than they would otherwise. The incentive structure for regulators is likely to reward those who adopt politically expedient policies, either intentionally (due to a desire to please the political overseer) or accidentally (due to bounded rationality). The article urges that careful thought be given to calls for greater state intervention, especially when those calls seek to correct firm biases. The article proposes measures that focus rewards to regulators on outcomes rather than outputs as a way to help ameliorate regulatory biases.

Originally, behavioral law and economics was an exercise in exploring the implications of key findings from behavioral economics (and psychology) for the analysis and reform of legal institutions. Yet as the new discipline matures, it increasingly replaces foreign evidence by fresh evidence, directly targeted to the legal research question. This chapter surveys the key methods: field evidence, survey data, vignette and lab experiment, discusses their pros and cons, illustrates them with key publications, and concludes with methodological paths for future development. It quantifies statements with descriptive statistics about the 77 behavioral papers that have been published in the Journal of Empirical Legal Studies since its foundation until the end of 2012.

The domain of behavioural law and economics is winning increasing attention also in the field of consumer policy. How the insights of behavioural law and economics can be used in policy remains, to a large extent, unclear. In this article, the following question is asked: “To what extent can the insights from the behavioural literature be applied in a way to formulate concrete suggestions to policy makers?” The authors show that many of the findings of the behavioural literature are very context-specific and hence apply only with respect to particular products or services and particular consumer groups. Formulating general policy conclusions is therefore difficult. However, as far as the specific domain of standard form contracts is concerned, the authors argue that the behavioural literature has shown that the traditional remedy (mostly resulting from information economics), being to focus on information disclosure will not be able to remedy market failures resulting from failing information and the "signing-without-reading-problem." Hence, more substantive forms of intervention in standard form contracts (e.g., resulting from collective bargaining) may be indicated as a remedy.

Written in honour of Guido Calabresi, this essay discusses critically several of the basic assumptions of the neo-classic model of tort law: one being that rational individuals will respond to applicable tort rules, striving to maximise their utility and to satisfy their own self-interest. Insights from behavioural law and economics are used to show that decision-making often takes place in a way that is different from that assumed by traditional economic models. The paper discusses the consequences of the behavioural literature for the economic analysis of law. It also demonstrates that Calabresi’s approach to tort law is more differentiated and flexible than some of the more formal models. This approach has the advantage that it allows one to take into account all kinds of cognitive limitations, errors, and information problems, as did Calabresi himself in many of his publications on this issue in the 1960s and 1970s. The paper illustrates how Guido Calabresi was already aware of cognitive limits: for instance, concerning the ability of parties to assess how much they should spend ‘for their own good’. This led him to arrive at balanced conclusions with regard to normative consequences of these limits. Many of the ideas of behavioural law and economics were hence already implicit in Calabresi’s writings.

One of the central distinctions in the literature with regard to the behavioral function of the law is between “intrinsic” and “extrinsic” motivations. Extrinsic motivation is linked to actions that are driven by external commands or incentives. Conversely, intrinsic motivation is found when the behavior is chosen from within the individual, usually out of a sense of moral or civic duty. This paper will attempt to improve our understanding of the interrelationship between love and money in a legal context, through a discussion of a series of theoretical dilemmas related to the interplay between intrinsic and extrinsic compliance motivations. For the most part, researchers who have worked within the behavioral analysis of legal scholarship have not focused on love, but rather on other intrinsic motivations, such as trust, morality, and pro-social motivations. Love, however, as one of the most basic intrinsic motivations, can benefit from the insights explored in the more general context of such other intrinsic motivations. Similarly, expanding the discussion from money to monetary instruments such as fines, deposits, and rewards, as well as other non-monetary legal instruments such as imposing a duty, could improve both the theoretical basis of the discussion and the empirical data available.

The paper will be divided into two main parts. The first part will focus on three bodies of literature which provide the basic theoretical view of how intrinsic and extrinsic compliance motivations interact. The second part of the paper will focus on the normative implications of this theoretical point of view, leading to some tentative policy suggestions as to how to countervail some of the disruptive effects of monetary considerations, while still maintaining people’s intrinsic commitment toward socially desirable behavior.

The present chapter attempts to map the literature of ethical decision making in psychology and management and examine the ways in which it could shape behavioral law and economics. In the last ten years, research in the field of ethical decision making has grown exponentially, mainly in the area of behavioral ethics or bounded ethicality. The new literature uncovers the various cognitive and motivational mechanisms that cause good people to engage in bad behaviors. This shift in focus has made ethical decision making an important area both normatively and descriptively for the scholarship on management. In the present chapter I make the case that as a result of the shift, this literature has become important to the law in general and to the domain of behavioral law and economics in particular. Moreover, I argue that to some extent this literature poses a much greater threat to the assumptions of rationality than does classical behavioral law and economics because it reexamines both the "self" in self-interest and the limited importance of "choices" in accounting for people's decisions and behaviors. In conducting this review, I examine all of the important paradigms and biases that have been developed in this area, such as moral disengagement, self-deception, moral licensing, automaticity of self-interest, moral hypocrisy, elastic justification, ethical fading, blind spots, and the dishonesty of honest people. I argue that although there has been a significant advance in the understanding of ethical decision making, our understanding is still not as developed as it seems, with numerous and at times conflicting paradigms attempting to describe how good people are responsible for bad deeds. I attempt to create some order on the descriptive side, explaining the principal taxonomies and highlighting their strengths and weaknesses. On the normative side, I show how the mechanisms developed by this literature uncover the limited ability of current enforcement strategies to shape behavior. The chapter concludes with some tentative suggestions on how to overcome these limitations and address the unaware, automatic unethical behaviors that are described by the bounded ethicality literature. In particular, I focus the legal feasibility of concepts such as dual reasoning enforcement, statistical unethicality, disambiguation, accountability and reflection.

Feldman & Lobel (2014). Behavioral Trade-Offs: Beyond the Land of Nudges Spans the World of Law and Psychology. San Diego Legal Studies Paper No. 14-158. The purpose of this chapter is to illuminate the breadth and potential of behaviorally informed legal policy. We argue that currently policy approaches that encompass behavioral insights often overlook a fuller picture of psychology. A narrow approach limits the successful integration of behavioural insights into the legal system. This chapter suggests ways to move toward harmonization between the various law and psychology schools of thought. The need for such harmonization stems not only from the independent development of each strand, absent, for the most part, coherent integration and exchange, but also because this lack of awareness of the insights developed in related areas of law and psychology may lead to very limited and sometimes inadvertent policy recommendations. To meet this challenge, the paper suggests the need to balance some of the tensions which emerge from different aspects of psychology into a proposed framework of behavioural trade-offs. In particular we will focus in this chapter on taxonomy with four main trade-offs. Outcome vs. Process; Invisible vs. Expressive Law; Trusting vs. Monitoring; and Universal vs. Targeted Nudging. By demonstrating how actual policy concerns could be better understood by accounting for these trade-offs, the chapter will contribute to a more informed and nuanced path of EU behavioural-based legal policy.

Economic bestsellers like Freakonomics and Nudge that mainly address outsiders of the economic discipline are also consumed by lawyers. The latter has already become an important reference in the field of consumer law and policy. In principle, this is nothing to complain about but part of law’s encounter with science, namely the social sciences. Notably, the law and economics movement proved successful in importing economic perspectives into legal discourse. However, it would seem questionable if the law followed each trend on the academic book market. While there has been an increasing emphasis on economic perspectives at the expense of sociological perspectives within the field of law, economy, and society, a major shift can now also be observed in the field of law and economics. With the behavioural turn in law and economics, homo oeconomicus seems to be transformed into Homer Economicus, and consumer law prone to be Simpsonized. In this paper, the turn from neoclassical law and economics to behavioural law and economics will be analysed from a third, namely sociological perspective: the economic sociology of law. In this framework, it is possible to compare and confront the “old” homo oeconomicus rationalis and the “new” homo oeconomicus behaviouralis with a third model—homo oeconomicus culturalis—which demonstrates the limits of the previous models, not least with regard to explaining the recent financial crisis. While governance by nudges might look, at first sight, as a tempting idea, I will question the normative side of this project and emphasize its possible effects on our legal culture and, thereby, our human condition.

Millions of credit-constrained borrowers turn to title loans to meet their liquidity needs. Legislatures and regulators have debated how to best regulate these transactions, but surprisingly, we still know very little about the customers who use title loans. This Article reports findings from the first large-scale academic study of title lending customers. We surveyed over 400 title lending customers across three states and obtained information about customers’ demographic and behavioral characteristics.

Based on the results of our survey and guided by insights from behavioral economics, this Article seeks to reframe the title lending debate. Instead of focusing on the risks and consequences of borrowers’ cars being repossessed, as the vast bulk of the literature does, we argue that the primary problem that most borrowers face is underestimating the true cost of taking out a title loan. Borrowers’ survey responses demonstrate that many borrowers are overly optimistic and experience self-control problems that affect their ability to make timely loan payments. We argue that these deviations from the assumptions of classical economics do not warrant an outright ban of title lending, but they do provide room for policy interventions. Policymakers can improve efficiency in title lending markets by requiring lenders to disclose to consumers the likely experiences they will have with their title loans rather than merely requiring lenders to communicate pricing information.

Neoclassical economics or "price theory" has had a profound effect upon antitrust analysis, first as practiced in academia and then as reflected in the jurisprudence of the Supreme Court of the United States. More recently, behavioral economics has had a large and growing influence upon legal scholarship generally. Still, behavioral economics has not yet affected judicial decisions in the United States in any substantive area of law. The question we address is whether that is likely to change in the foreseeable future, i.e., whether the courts' present embrace of price theory in antitrust cases portends the courts' imminent acceptance of behavioral economics in either antitrust or consumer protection cases.

This essay is both a review of the excellent book “Nudge and the Law. A European Perspective”, edited by Alberto Alemanno and Anne-Lise Sibony, and an assessment of the major themes and challenges that the behavioural analysis of law will and should face in the immediate future.

The book makes important and novel contributions in a range of topics, both on a theoretical and a substantial level. Regarding theoretical issues, four themes stand out: First, it highlights the differences between the EU and the US nudging environments. Second, it questions the reliance on expertise in rulemaking. Third, it unveils behavioural trade-offs that have too long gone unnoticed in behavioural law and economics. And fourth, it discusses the requirement of the transparency of nudges and the related concept of autonomy. Furthermore, the different authors discuss the impact of behavioural regulation on a number of substantial fields of law: health and lifestyle regulation, privacy law, and the disclosure paradigm in private law.

This paper aims to take some of the book’s insights one step further in order to point at crucial challenges – and opportunities – for the future of the behavioural analysis of law. In the last years, the movement has gained tremendously in breadth and depth. It is now time to make it scientifically even more rigorous, e.g. by openly embracing empirical uncertainty and by moving beyond the neo-classical/behavioural dichotomy. Simultaneously, the field ought to discursively readjust its normative compass. Finally and perhaps most strikingly, however, the power of big data holds the promise of taking behavioural interventions to an entirely new level. If these challenges can be overcome, this paper argues, the intersection between law and behavioural sciences will remain one of the most fruitful approaches to legal analysis in Europe and beyond.

The chapter, in the Oxford Handbook of Behavioral Economics and the Law, discusses the contributions of cognitive psychology and behavioral studies to the research of tort law. These contributions, we show, relate to a wide range of issues in torts: from the basic decision to impose tort liability, through the choice between liability rules, to specific rules and remedies. Accordingly, behavioral studies are of particular significance for the analysis of the tort system.

The literature review focuses on contributions made to three key elements of tort law: the choice between liability regimes; the choice between tort liability and regulation (including the choice between harm-based and risk-based liability); and damages (in particular, punitive damages and damages for pain and suffering).

We also offer two new avenues for future research: vicarious liability and people's perceptions of the variability among large groups of tort victims. Albeit under-researched, we think behavioral economics can offer significant contributions to the study of these areas.

Behavioral economics has been a growing force in many fields of applied economics, including public economics, labor economics, health economics, and law and economics. This paper describes and assesses the current state of behavioral law and economics. Law and economics had a critical (though underrecognized) early point of contact with behavioral economics through the foundational debate in both fields over the Coase theorem and the endowment effect. In law and economics today, both the endowment effect and other features of behavioral economics feature prominently and have been applied in many important legal domains. The paper concludes with reference to a new emphasis in behavioral law and economics on "debiasing through law" - using existing or proposed legal structures in an attempt to reduce people's departures from the traditional economic assumption of unbounded rationality.

When asked why people obey the law, legal scholars usually give two answers. Law deters illicit activities by specifying sanctions, and it possesses legitimate authority in the eyes of society. Richard McAdams shifts the prism on this familiar question to offer another compelling explanation of how the law creates compliance: through its expressive power to coordinate our behavior and inform our beliefs.

People seek order, and they sometimes obtain a mutually shared benefit when each expects the other to behave in accordance with law. Traffic regulations, for example, coordinate behavior by expressing an orderly means of driving. A traffic sign that tells one driver to yield to another creates expectations in the minds of both drivers and so allows each to avoid collision. McAdams generalizes from traffic to constitutional and international law and many other domains. In addition to its coordinating function, law expresses information. Legislation reveals something important about the risks of the behavior being regulated, and social attitudes toward it. Anti-smoking laws, for example, signal both the lawmakers’ recognition of the health risks associated with smoking and the public’s general disapproval. This information causes individuals to update their beliefs and alter their behavior.

McAdams shows how an expressive theory explains the law’s sometimes puzzling efficacy, as when tribunals are able to resolve disputes even though they lack coercive power or legitimacy. The Expressive Powers of Law contributes to our understanding of the mechanisms by which law—simply by what it says rather than what it sanctions—generates compliance.

This chapter argues that a behavioral law and economics approach to tax is deeply needed for a wider normative analysis of the impacts of law on social welfare. The absence of traditional markets to serve as arbitrage mechanisms in public finance means that suboptimal tax and fiscal systems can arise and persist for long periods of time. Most of the current scholarly applications of behavioral approaches to tax, however, fail to take into account the institutional settings in which tax laws exist. The common recommendation for tax-favored savings plans to counteract a persistent individual-level myopia that leads to under-savings for many suffers from the possibility of being undercut on account of the ability to borrow tax-free under the current income tax system, combined with...individual-level myopia. Similarly, a recent trend of scholarship that argues for “low salient” taxes to help ameliorate persistent fiscal crises (themselves exacerbated by pervasive behavioral biases playing out in a setting absent effective arbitrage mechanisms) ignores or underplays the real costs of even hidden taxes, both allocatively and distributionally. The chapter concludes that the most critical work for a behavioral law and economics approach to tax lies ahead.

Behavioral economics has become a popular field of study. With the reconsideration of the homo economicus paradigm, psychology and sociology have infiltrated economic theory. More recently, several commentators have argued in favor of an incorporation of behavioral economics within antitrust law. This paper argues, however, that EU competition law already integrates the findings of behavioral economics. A review of the Article 102 TFUE case-law reveals that contrary to the more conservative approach adopted by US agencies and courts, EU competition authorities already acknowledge the boundaries and biases of economic agents, and take into account the limits of the rationality assumption whilst drafting their decisions.

Over the past decade, psychological research has enjoyed a rapidly expanding influence on legal scholarship. This expansion has established a new field- "Behavioral Law and Economics" (BLE).BLE's principal insight is that human behavior commonly deviates from the predictions of rational choice theory in the marketplace, the election booth, and the courtroom. Because these deviations are predictable, and often harmful, legal rules can be crafted to reduce their undesirable influence. Ironically, BLE seldom recognizes that its intellectual origins lie with psychology more so than economics. This failure leaves BLE open to criticisms that can be answered only by embracing the underlying psychological foundation of the field. Embracing psychology is harder than it seems, however, because psychology meshes much less easily with law than does economics. Consequently,BLE has yet to fully realize its potential and might never successfully do so.

Robbenolt & Hans (2016). The Psychology of Tort Law. Advances in Psychology and Law, Volume 1 of the series Advances in Psychology and Law pp 249-274.

This chapter explores the interaction of tort law and psychology. The law of torts governs the circumstances under which one person or entity is to be held civilly liable for having caused harm to another. Tort law is thought to create incentives for appropriate behavior, to deter unacceptable behavior, and to accomplish corrective justice by remedying past wrongs. In seeking to accomplish these objectives, the law of torts is primarily concerned with determining whether an actor has acted intentionally or negligently in harming another, whether the act at issue caused the injury, whether there should be any other limitations on liability, how to appropriately compensate for that harm (compensatory damages), and whether and how much punishment or additional deterrence (punitive damages) is warranted. Psychological theory and research bear on each of these facets of tort law.

This chapter reviews interconnections between psychology and three specific domains of tort law—causation, comparative negligence, and tort damages. For each domain, it analyzes the contributions of psychological theory and research. The chapter identifies areas in which human psychology comports with the expectations of tort law, areas in which tort rules diverge from psychological intuitions, and psychological phenomena that complicate the application of tort law. The chapter concludes by identifying connections between psychology and tort law that would benefit from more empirical research.

This introductory chapter to the edited volume "Nudging Health: Health Law and Behavioral Economics" (I. Glenn Cohen, Holly Fernandez Lynch, Christopher T. Robertson, eds.) introduces the potential benefits, drawbacks, and possibilities for using the tools of behavioral economics - and particularly behavioral law and policy - to improve human health, exploring the policy alternatives to traditional "carrots and sticks" that may be utilized in the health sector. It also provides brief summaries of each chapter in the volume, along with a complete Table of Contents.

From the book jacket: Behavioral nudges are everywhere: calorie counts on menus, automated text reminders to encourage medication adherence, a reminder bell when a driver’s seatbelt isn’t fastened. Designed to help people make better health choices, these reminders have become so commonplace that they often go unnoticed. In Nudging Health, forty-five experts in behavioral science and health policy from across academia, government, and private industry come together to explore whether and how these tools are effective in improving health outcomes.

Behavioral science has swept the fields of economics and law through the study of nudges, cognitive biases, and decisional heuristics — but it has only recently begun to impact the conversation on health care. Nudging Health wrestles with some of the thorny philosophical issues, legal limits, and conceptual questions raised by behavioral science as applied to health law and policy. The volume frames the fundamental issues surrounding health nudges by addressing ethical questions. Does cost-sharing for health expenditures cause patients to make poor decisions? Is it right to make it difficult for people to opt out of having their organs harvested for donation when they die? Are behavioral nudges paternalistic? The contributors examine specific applications of behavioral science, including efforts to address health care costs, improve vaccination rates, and encourage better decision-making by physicians. They wrestle with questions regarding the doctor-patient relationship and defaults in healthcare while engaging with larger, timely questions of healthcare reform.

Nudging Health is the first multi-voiced assessment of behavioral economics and health law to span such a wide array of issues — from the Affordable Care Act to prescription drugs.Foreword by Cass R. Sunstein

People are often reluctant to make decisions by calculating the costs and benefits of alternative courses of action in particular cases. Knowing, in addition, that they may err, people and institutions often resort to second order strategies for reducing the burdens of, and risk of error in, first order decisions. They make a second order decision when they choose one from among such possible strategies. They adopt rules or presumptions; they create standards; they delegate authority to others; they take small steps; they pick rather than choose. Some of these strategies impose high costs before decision but low costs at the time of ultimate decision; others impose low costs both before and at the time of ultimate decision; still others impose low costs before decision while exporting to others the high costs at the time of decision. We assess these second-order strategies and provide grounds for choosing among them in both legal and nonlegal contexts, by exploring the extent to which they minimize the overall costs of decision and costs of error. We also attempt to cast light on political, legal, and ethical issues raised by second-order decisions.

The paper examines some of the important tasks awaiting the next generation of scholarship in behavioural law and economics. Some of these tasks reflect the need for expanding the breadth of the behavioural approach to law while others involve the mission of increasing its depth. The following sections examine each category in turn.

Dissatisfied with the mainstream antitrust jurisprudence that has emerged over the past several decades and garnered widespread consensus, and encouraged by the momentum the financial crisis has generated for intervention, competition policy scholars and regulators have turned to behavioral economics to provide the intellectual foundation for a new, “behaviorally-informed” approach to competition policy. We evaluate these behaviorally-informed regulatory proposals assuming arguendo ideal conditions for their implementation: the robustness of behavioral findings to the market setting, the appropriateness of imputing those findings to firm behavior, and that regulators and judges do not suffer the same biases. Others have effectively criticized the behavioral law and economics literature on each of these points. While we believe these criticisms have significant force, our approach offers a more fundamental critique of the behavioral antitrust enterprise. We demonstrate that, even under the ideal conditions described above, behavioral economics does not yet offer an antitrust-relevant theory of competition. We dub this result the “irrelevance theorem.” If one assumes a given behavioral bias applies to all firms – both incumbents and entrants – behavioral antitrust policy implications do not differ from those generated by the rational choice models of mainstream antitrust analysis. Existing behavioral antitrust regulatory proposals have either ignored the implications of entry altogether, or assumed without justification in the behavioral economic literature or elsewhere, that cognitive biases influence the decisions of incumbents but not rivals or potential entrants. While the theoretical failure we expose in no way limits the potential future utility of incorporating behavioral principles into antitrust, behavioral principles must lead to testable implications and outperform existing economic models before it achieves policy relevance. Despite the enthusiastic support it has received from its advocates, until this occurs, behavioral principles will not be in a position to improve an empirically-grounded, evidence-based antitrust policy. We conclude by calling on interventionist advocates of behavioral economics to demonstrate, rather than presume, that behavioral principles can generate a higher rate of return for consumers on their antitrust investment.

Behavioral economics combines economics and psychology to produce a body of evidence that individual choice behavior departs from that predicted by neoclassical economics in a number of decision-making situations. Emerging close on the heels of behavioral economics over the past thirty years has been the “behavioral law and economics” movement and its philosophical foundation — so-called “libertarian paternalism.” Even the least paternalistic version of behavioral law and economics makes two central claims about government regulation of seemingly irrational behavior: (1) the behavioral regulatory approach, by manipulating the way in which choices are framed for consumers, will increase welfare as measured by each individual’s own preferences and (2) a central planner can and will implement the behavioral law and economics policy program in a manner that respects liberty and does not limit the choices available to individuals. This Article draws attention to the second and less scrutinized of the behaviorists’ claims, viz., that behavioral law and economics poses no significant threat to liberty and individual autonomy. The behaviorists’ libertarian claims fail on their own terms. So long as behavioral law and economics continues to ignore the value to economic welfare and individual liberty of leaving individuals the freedom to choose and hence to err in making important decisions, “libertarian paternalism” will not only fail to fulfill its promise of increasing welfare while doing no harm to liberty, it will pose a significant risk of reducing both.

Wrightsman (2016). Reflections on Psychology and Law. The Witness Stand and Lawrence S. Wrightsman, Jr. pp 171-173. The chapters in this book demonstrate how broad and versatile the field of psychology can be, in applying its concepts and methods to the study of the legal system, and especially to the role of the expert witness. The last chapter in this volume comes from Lawrence S. Wrightsman, Jr., who was the beneficiary of a festschrift. His comments are typical of the scholar and the man himself. He is humble, astute, and aware of the unfinished research that still engulfs the psychology and law field. His ability to see beyond psychological theories generated for one area of behavior and utilize those theories to understand and explain the behaviors that occur in the theorizing and practice of law is evident from his own description of his work. More importantly, Larry reminds scholars who study psychology and law (and any discipline) to focus on the source, in order to understand why behaviors occur and what can be done to transform them. In the end, Larry’s approach to his scholarly work derives from the legacy of his own training in psychology. He reminds us that psychology is really a discipline to be given away. Consequently, through his research, teaching, and numerous textbooks, Larry Wrightsman has given much to the field of psychology and law. Our greatest hope is that the present volume, and the future research it will stimulate, continues to give in his honor.

Provides a critical introduction to the heuristics and biases literature, human pro-social motivation, and moral judgment.Includes dozens of critical surveys of the behavioral analysis of various legal fields, ranging from tort, contract, property and insurance law to regulation, evidence, and litigation.

Behavioural targeting is the monitoring of people’s online behaviour to target advertisements to specific individuals. European law requires companies to obtain informed consent of the internet user before they use tracking technologies for behavioural targeting. Other jurisdictions also emphasise the importance of choice for internet users. But many people click ‘I agree’ to any statement that is presented to them. This paper discusses insights from behavioural economics to analyse problems with informed consent to behavioural targeting from a regulatory perspective. What are the policy implications of insights from behavioural economics in the context of behavioural targeting? Two approaches to improve regulation are explored. The first focuses on empowering the individual, for example by making informed consent more meaningful. The second approach focuses on protecting the individual. If aiming to empower people is not the right tactic to protect privacy, maybe specific prohibitions should be introduced.

Wednesday, November 02, 2016

I heard an interesting discussion on principles of behavioural design on the Irish Times Second Captains football podcast (link to podcast here, discussion really gets started at around 13.00).

The presenters discuss recent decreases in football TV viewing figures, and argue that this reflects not just the economic cost of watching football on TV (i.e., subscriptions to Sky Sports and BT Sport), but also the difficulty of concentrating on a 90 minutes game of football in our attention-scarce information-overloaded world. The presenters quote from and discuss some of the recent press surrounding B. J. Fogg's Behavioral Design lab at Stamford.

The main takeaway is that even for a dedicated football fan, there are lots of easier ways of digesting football-related content (podcasts, twitter feeds, blogs, video clips) which in some way tap more efficiently into the principles of an addictive/repetitive behavioural design experience.

I guess one main takeaway is that falling viewing figures for football on TV might reflect problems of poor behavioural design, rather than necessarily being a case of consumers approaching their maximum willingness to pay for the football-related content that they actually want.

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The purpose of this blog is to provide a forum for discussing research in microeconomics, behavioural economics and cognate areas. This blog is not affiliated to any institution and all posts represent personal views and opinions of the individual posters. The blog is moderated by Liam Delaney